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NZD/USD Eyes 2018-Low as 10-Year U.S. Treasury Yield Spikes Above 3.00%

NZD/USD Eyes 2018-Low as 10-Year U.S. Treasury Yield Spikes Above 3.00%

David Song, Strategist

FX TALKING POINTS:

- USD/CAD Bullish Sequence Fizzles Despite Cautious Bank of Canada (BoC) Comments, Strong U.S. Consumer Confidence Survey. All Eyes on U.S. Gross Domestic Product (GDP) Report.

- NZD/USD Eyes 2018-Low as 10-Year U.S. Treasury Yield Spikes Above 3.00%. Relative Strength Index (RSI) Approaches Oversold Territory.

DailyFX Table

BULLISH USD/CAD SEQUENCE CONTINUES TO TAKE SHAPE AHEAD OF BANK OF CANADA (BOC) TESTIMONY. ALL EYES ON GOVERNOR STEPHEN POLOZ.

USDCAD Table

USD/CAD struggles to extend the recent series of higher highs and lows even as the Bank of Canada (BoC) strikes a cautious tone in front of lawmakers, and the pair may stage a larger pullback over the coming days should fresh data prints coming out of the U.S. economy undermine the Federal Open Market Committee’s (FOMC) scope to extend the hiking-cycle.

The testimony with BoC Governor Stephen Poloz suggests the central bank remains in no rush to implement another rate-hike as ‘some degree of monetary policy accommodation will likely still be needed to keep inflation on target,’ and the wait-and-see approach may continue to generate headwinds for the Canadian dollar as the FOMC pledges to implement higher borrowing-costs over the coming months.

With that said, the limited reaction to the better-than-expected U.S. Consumer Confidence survey keeps the Gross Domestic Product (GDP) in focus as the fresh updates are expected to show a downtick in the growth rate, but a material pickup in the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, may ultimately boost the appeal of the greenback as growth starts to exceed the 2% target.

USD/CAD DAILY CHART

USDCAD Daily Chart
  • Lack of momentum to extend the bullish sequence may generate a larger pullback in USD/CAD, but another close above 1.2830 (38.2% retracement) keeps the near-term outlook tilted to the topside, with the next hurdle coming in around 1.2980 (61.8% retracement) to 1.3030 (50% expansion).
  • Break/close above the Fibonacci overlap brings up the 1.3130 (61.8% retracement) region, which lines up with the 2018-high (1.3125).

For more in-depth analysis, check out the Q2 Forecast for the U.S. Dollar

NZD/USD EYES 2018-LOW (0.7073) AS U.S. TREASURY YIELDS CONTINUE TO RISE. RELATIVE STRENGTH INDEX (RSI) APPROACHES OVERSOLD TERRITORY.

NZDUSD Table

NZD/USD stands at risk for further losses as the10-year U.S. Treasury Yields spikes above the 3.00% mark for the first time since 2014, and the pair appears to be on course to test the 2018-low (0.7073) as it extends the series of lower highs and lows from earlier this week.

Rising U.S. interest rates are likely keep NZD/USD under pressure as Fed Fund Futures reflect growing bets for four rate-hikes in 2018, and the pair may continue track lower over the remainder of the month as the bearish momentum appears to be gathering pace. The Relative Strength Index (RSI) quickly approaches oversold territory after snapping the upward trend carried over from the previous month, and a move below 30 may be accompanied by fresh yearly lows in the exchange rate as the advance from the November-low (0.6780) unravels.

Keep in mind, the Reserve Bank of New Zealand (RBNZ) may also stick to the sidelines at the next meeting on May 10 amid the structural changes at the central bank, and Governor Adrian Orr may largely endorse a wait-and-see approach at his first meeting as ‘inflation is expected to weaken further in the near term due to softness in food and energy prices and adjustments to government charges.

NZD/USD DAILY CHART

NZDUSD Daily Chart
  • NZD/USD continues to carve a bearish sequence following the failed attempt to hold/close above the 0.7330 (38.2% retracement) to 0.7370 (23.6% retracement), with the pair at risk for further losses as the RSI snaps the upward trend from March.
  • The Fibonacci overlap around 0.7240 (61.8% retracement) to 0.7260 (38.2% retracement) sits on the radar, with a break/close below the stated region raising the risk for a move back towards 0.7170 (50% retracement) to 0.7200 (38.2% retracement), which lines up with the monthly-low (0.7195).

For more in-depth analysis, check out the Q2 Forecast for the U.S. Dollar

Interested in having a broader discussion on current market themes? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to discuss potential trade setups!

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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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